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2018 Could Be Another Record Year For Solar Energy

Early projections of solar installations in 2018 are even better than expected.

A year ago, 2017 and 2018 were supposed to be down years for the solar industry as the U.S. and China pulled back from extremely high installation levels and adjusted solar policies. Instead, this year will be a record year for the industry, and 2018 could be even better.

The Q4 2017 Global PV Market Outlook report from Bloomberg New Energy Finance (BNEF) estimates that 92 GW to 97 GW of solar will be installed globally in 2017, up from 75 GW a year ago. In 2018, they expect between 94 GW and 111 GW to be installed, and further growth to 107 GW to 121 GW in 2019. The future for solar energy still looks very bright globally.

Image source: Getty Images.

Why solar energy is booming

You don't have to look further than Mexico to see why solar energy is booming around the world. A recent auction resulted in a low bid of 1.92 cents per kWh of electricity, the lowest seen in Latin America and one of the lowest in the world. At under 2 cents per kWh, solar energy beats coal, natural gas, nuclear, and even wind (in some locations) on cost.

As solar energy becomes the economically viable choice for energy production, utilities, building owners, and homeowners are seeing it as the best option for new generation. And countries like China, India, and Mexico see it as a way to grow their economies.

Solar companies are being pulled by two threads

For the solar companies supplying modules and other components, the growth is certainly a positive. But it comes at a cost: the low economics means the price of solar panels and all other parts of the value chain have come under pressure. Leaders like First Solar(NASDAQ:FSLR), SunPower(NASDAQ:SPWR), and Canadian Solar(NASDAQ:CSIQ) aren't having a problem selling all of the solar panels they can make. They're having a problem turning those sales into consistent profitability.

Low bids from solar developers will keep the pressure on manufacturers to lower their prices. So a boom in profits from solar industry growth may not be around the corner.

Is growth finally going to be a boon for solar manufacturers?

The one potential upside of solar installation growth is that it could soak up demand in an oversupplied industry. For years, manufacturers have built solar panel manufacturing capacity faster than demand grew, which was a big driver of the drop in solar panel costs. But there are fewer solar manufacturers today than a decade ago, and most of their balance sheets are already stretched -- so they're not likely to increase demand at the rate they have over the past decade. That could help shore up component pricing if manufacturers aren't threatened by an oversupplied market.

No matter how you look at it, a growing solar industry should be good for solar manufacturers because they'll be able to sell all of their own production and potentially grow production in the future. Time will tell if that leads to increased profits as well.